Facilitating Well-Functioning Regional Markets in the EAC

How can an effective regional competition regime help?

Susanne Rabisch, CUTSGeorge Owuor, TMEA

Supported by

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Outline

1. Introduction

2. National and Regional Competition Regimes in the EAC

3. Progress and Challenges in the Implementation of EAC Competition Law

4. Cross-border Competition Concerns in the EAC - an overview

5. Conclusion and Suggested Way forward

31.Introduction With the enactment of the EAC Competition Act in 2006 foundation for a

regional competition regime has been laid

However, implementation of the EAC Competition Act has not seen much progress in spite of its relevance and need

CUTS implementing a project to contribute to the process of harmonising the national and regional competition laws in the EAC region (EACOMP project)

This presentation will outline some of the research findings and suggested way forward

41. Introduction: The Concept of Competitiveness

Competitiveness

Trade Competitiveness

Export Competiveness

Export Structure

Trade performance

51. Introduction: Export Competitiveness

“Export competitiveness is the ability of the producers to sell goods in the global market place at a price, quality and timeliness comparable to competing foreign producers.”

61. Introduction: How does competition help?

Low Entry Barriers

Increase in efficiency

Investor Confidence

71. Introduction: Practical Examples

Logistics Industry

Financial Industry

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2.National and Regional Competition Regimes in the EAC

92.1. Competition Laws, Regulations & Institutions

Competition Act

Competition Regulations

Competition Department in Ministry of Trade /EAC Sec.

Independent Competition Authority

Competition Tribunal

Tanzania ✔ ✔ - ✔ ✔

Kenya ✔ ✔ - ✔ ✖

Rwanda ✔ ✖ ✔ ✖ ✖

Burundi ✔ ✖ ✔ ✖ ✖

Uganda ✖ ✖ ✖ ✖ ✖

EAC ✔ ✔ ✔ ✖ ✖

102.2. Readiness for Implementation of EAC

Competition Act (relevant national policies/laws) Effective enforcement of a competition regime on the national and regional level

requires certain flanking policies and laws to be aligned with the “spirit of competition”

From a regional competition perspective it is therefore critical to review a number of related policies and laws in the EAC countries.

Industrial Policy National Procurement Trade and Investment Labour Competition policy and national laws

This will be necessary to assess whether they act as “enablers of a competitive regional market” and determine any needed amendments to the national or regional law

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3. Progress and Challenges in the Implementation of EAC

Competition Law

123.1.Progress in the Implementation of the EAC

Competition Act, 2006Progress and Current Status

EAC Competition Regulations adopted in 2010

Section 38 of Act amended to allow appointment of 5 Commissioners

Jun. 2013 - Sectoral Council on Trade, Industry, Finance & Investment (SCTIFI) adopted Roadmap for establishment of EAC Competition Authority

May 2014 - SCTIFI directed EAC Sectt. to establish the EACCA in FY 2014-15.

EACCA to be housed under EAC Department of Trade, Industry, Finance & Investment

Challenges and HindrancesHarmonization of competition laws not done, as anticipated by Sept.2013 (Roadmap)

Officer responsible for competition issues at the Secretariat was vacant for a long period

Difference in the levels of economic development and institutional/legal readiness to implement EAC Act

Varying levels of national capacity for implementation

No agreement on implementing EAC Competition Act, without national laws/insitutions in place in all members

133.2. Stakeholder Views: Challenges in the

Implementation of EAC Comp. Law

National Vs EAC Competition Laws- National legal framework needs to be in alignment with EAC

Act - not yet undertaken- Different levels of national economic development and

quest for protectionism- Amendments to the EAC Competition Act in this regard have

been delayed -

Political Economy Challenges- Lack of political will to advance the implementation of EAC

Comp. Act Vested interests- National reluctance for regional supervision of national

procurement and industrial policy

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4. Cross-Border Competition Concerns in the EAC

154.1. Possible factors causing competition

concerns in the EAC Inland transport costs are very high, thus reducing the ability of regional

firms to exert competitive pressures on local dominant firms

Exchange rate volatilities within the EAC region has slowed down market entry and exit in the face of sunk costs related to currency movements therefore incentivizing anticompetitive behaviour among dominant firms

The EAC region is characterized by firms with significant market power, dominant firms are able to operate outside competition pressures, abuse their dominant position and keep prices high

164.1.Possible factors causing competition

concerns in the EAC (Contd.) The existence of Non-Tariff Barriers (NTBs) in the EAC region are a regional

competition concern as they restrict the free movement of goods in response to supply and demand

Customs administrative entry and passage procedures Government participation in trade and restrictive practices tolerated by it Distribution Restrictions Specific limitations Technical barriers to trade and sanitary and phyto-sanitary measures (World Bank 2012)

The operation of MNCs in the regional EAC market pose threat to local firms and consumers dominance by distribution arrangements through local subsidiaries or distributor firms (esp. exclusive distributorship = vertical arrangement)

174.2. Common Types of Cross-Border

Anticompetitive Practices

Market sharing

184.3. Some Red-Flags in Key Sectors in the EAC

Breweries: leading players such as MNCs have been engaging in different tactics

aimed at increasing their market shares at the expense of their rivals, e.g. shareholding in dominant firms in their won markets linkages among players in different markets in the EAC

Cement: Subsidiary companies of MNCs with presence in more than one country in

the EAC have been engaged in fierce price competition which can easily breed anticompetitive tendencies

194.3. Some Red-Flags in Key Sectors in the EAC

(Contd.) Banking:

Foreign-owned banks in general have a strong presence in the EAC banking sector, controlling more than half the total assets of the banking sectors in Uganda (79%), Rwanda (54%), Tanzania (51%), Kenya (45%) and Burundi (41%) and have a natural advantage over local banks (Sanya and Gaertner, 2012)

Kenyan banks are a dominant force in the region – 19 of top-30 in the region. Kenya's network is most formidable

Alleged collusion between banks through concentrated market structure (interest)

Telecommunication: Negotiations among national telcom providers for borderless roaming are

beneficial for consumer, however, may be breeding ground for collusive practices among national providers across borders including on tariff charges

205. Possible Ways Forward

Political will must be created to ensure the motivation of stakeholders to prioritize implementation of the regional and national competition laws

The general public/consumers and the private sector need to be educated and made aware of the benefits that EAC and national competition regimes foster

sensitize policy makers in partner states who do not have competition regulations/institutions in place to appreciate the benefits of national and regional level competition policy and law

public/consumer support can be generated to influence the political process in the advancement of the operationalization of the law

215. Possible Ways Forward

Capacity building of regional and national structures to implement the the EAC competition law to address anticompetitive practices in the region effectively

EAC Partner States should implement the decisions of the SCTIFI of June 2013 urging Partner States that have not enacted competition laws and/or constituted Competition Authorities to do so.

The Partner States should harmonize their respective national laws with the regional law, and possible amendments to the EAC Act have to be made a priority on the summit level

226. Planned Project Advocacy Activities: “Accelerating the Implementation of EAC Competition Policy and Law”

National Advocacy and Training Workshops (October/November 2014) Dissemination of research findings on “State of Play of National Competition Reforms” Presentation of analysis of the alignment of national competition legislation and EAC

competition law, challenges and solutions Presentation of findings on Cross-Border Competition Concerns in the EAC Training: Fundamentals of anti-competitive practices, strategies to address cross-

border competition concerns, Advocacy strategies

Regional Advocacy Workshop (March 2015, Arusha) Presentation of research findings of EAC Synthesis Report on State of Implementation

of EAC Competition Law EAC secretariat presentation on current state of EAC competition law implementation

and the way forward International experience: regional competition regimes

If interested to attend a workshops please email: sur@cuts.org

237. Endpoints Many potentially anticompetitive practices are going unchecked due to the

absence of an overall regional regulator to deal with cross-border competition issues Leaving weaker market players and consumers exposed to unfair business conduct by dominant firms (private or public sector owned)

National representatives at the EAC level must prioritize the implementation of the EAC Competition Act 2006 in order to promote a level-playing ground to promote fair competition and consumer welfare

Fair competition in the region is expected to lead to better access to goods and services, lower prices, better quality and private sector growth

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Thank you